Tax Amendment Act 2025

On December 4, 2025, the German Parliament (Bundestag) passed the Tax Amendment Act 2025, which was introduced into the legislative process under the leadership of the Federal Ministry of Finance (Bundesfinanzministerium). In this article, we briefly explain the key details.

Income Tax Act

The changes to the Income Tax Act will result in noticeable tax relief for almost all employed or voluntary workers.

Trainer allowance

The trainer allowance (Section 3 No. 26 EStG) is limited to certain activities that must be performed personally and are related to education, art, or care.

From 2026, trainers will be able to receive up to 3,300 EUR tax-free. The same applies to instructors, educators, caregivers, and similar professions, but artists and those who care for the elderly, sick, or disabled will also benefit.

The prerequisite is that the remuneration is paid in the service of a public corporation (K.d.ö.R.) or a non-profit, charitable, or church institution, e.g., an association recognized as non-profit (e.V.).

A further requirement is that this institution must be located in the European Union (EU), Iceland, Liechtenstein, Norway, or Switzerland.

Volunteer allowance

The volunteer allowance (§ 3 No. 26a EStG) goes further than the trainer allowance and includes people who work on a voluntary basis in administration and organization.

From 2026, volunteers will be able to receive up to 960 EUR tax-free. The same conditions apply as for the trainer allowance (see above).

Commuter allowance

From 2026, commuters will be able to claim the commuter allowance, which has been increased to 0.38 EUR per kilometer, applicable from the first kilometer.

Maintenance of a secondary work-related household abroad

The necessary additional expenses for maintaining a secondary work-related household in Germany remain capped at 1,000 EUR per month.

Until now, there has been no legal cap on maintaining a secondary work-related household abroad.

From 2026, costs for maintaining a secondary work-related household abroad can be claimed up to a new limit of 2,000 EUR per month.

The background to this is a German Supreme Financial Court (BFH) ruling of August 9, 2023 (docket number VI R 20/21), which is unpopular with the tax authorities and which made all accommodation costs at the foreign place of employment deductible as income-related expenses within the framework of having to maintain two separate households. This overturned the administrative decree of the tax authorities that had been in practice for many years (BMF circular dated November 25, 2020, Federal Tax Gazette I 2020, pg. 1228), which stipulated that the costs of the secondary household abroad should be capped at the average cost of a 645-square-foot apartment at the place of employment abroad.

The amendment to Section 9 (1) sentence 3 no. 5 sentence 4 of the Income Tax Act (EStG) is intended to prevent the unlimited deduction of secondary work-related household expenses abroad in the future.

The amendment to the law is likely to withstand renewed review by the German tax courts in most cases. First, there is an opening clause in the event of an obligation to use or recognition of the necessity of a more expensive company or service apartment. Second, the German Supreme Court overseeing Germany's constitution regularly grants the legislature broad discretion in standardization.

Contributions to unions

From 2026, contributions to unions may be deducted in addition to the employee lump sum deductible of 1,230 EUR per year for employed persons (Section 9a sentence 2 EStG).

Political donations

From 2026, single persons may donate 3,300 EUR per year to political parties, and jointly assessed spouses or registered partners may donate 6,600 EUR per year. A maximum of half of the donation reduces the tax (Section 34g sentence 2 EStG). The remainder can then be claimed as a special expense (Section 10b (2) sentence 1 EStG), but only to the extent that no tax reduction has been granted.

Company events (Entertainment)

Wages paid on the occasion of company events for entertainment can be taxed at a flat rate of 25% income tax and are then exempt from social security contributions (Section 40 (2) sentence 1 no. 2 EStG in conjunction with Section 1 (1) sentence 1 no. 3 SvEV - Social Security Payroll Ordinance).

From 2026, flat-rate taxation will be conditional on the company event being open to all members of the company or at least all members of a part of the company.

Employers who are planning a company event in which not all employees will participate must act now:

If a company event is planned in which only certain employees are to participate, a notification must be sent to the tax office in advance

• a notification must be sent to the tax office in advance, defining the parts of the company, e.g., the departments.
  A current list of employees must be attached for each department.
  
  
• Confirmation must be obtained from employees of the part of the company who do not wish to participate in the company event (declaration of refusal).

It is also advisable to request income tax information in order to be absolutely sure that the department constitutes a separable part of the company according to the tax authorities, for which flat-rate taxation of the company event is permissible.

Violations can result in costly trouble:

• As part of a wage tax field audit, the tax officer will usually request to gross up the net costs of the company event, reverting to individual taxation at employee level.
  
  
• In accordance with the statutory provisions, a social security audit is carried out every four years (§ 212a SGB VI).
  As part of this audit, social security contributions are levied retrospectively that would not have been incurred if flat-rate taxation had been permitted.

However, you are not completely defenseless against this.

If the employee repays the taxes with their next paycheck, there is usually only a gross advantage.

However, different provisions apply with regard to social security:

According to Section 28g sentence 3 SGB IV, any social security contributions that have not been deducted may only be collected retroactively with the next three pay slips, unless the deduction was not made through no fault of the employer. However, this cannot be assumed in these cases.

Mobility allowance

From 2026, the mobility allowance will apply to all commutes of 21 kilometers or more in addition to the distance allowance. The mobility allowance amounts to 14% of the distance allowance. People with an income below the basic allowance can receive this amount. The basic allowance is €12,348 or €24,696 for jointly assessed persons.

R&D Grant Allowance Act

The previous reference to the EU regulation in the R&D Allowance Act has been updated (Section 9 (5) FZulG):

In future, sole traders who wish to receive funding for their own work must demonstrate compliance with the requirements of Regulation (EU) 2023/2831 (de minimis regulation), which essentially stipulates:

• A maximum of EUR 300,000 per company within three years
• No cumulation with other aid (if not permitted)

Value Added Tax Act

In addition to the change in the digital delivery of notices (Section 18g UStG) and the special regulations on central customs clearance (Section 21b UStG), the following significant changes have been decided by the Bundestag:

Restaurant services

From 2026, VAT on food in restaurants will be reduced to the current reduced rate of 7%.

This rule does not apply to beverages.

The tax authorities intend to issue equity measures for the changeover on New Year's Eve.

Increase in the limit for average rate taxation

From 2026, a new limit of EUR 50,000 will apply to the application of average rate taxation.

Corporations, associations of persons, and asset pools within the meaning of Section 5 (1) No. 9 of the Corporation Tax Act that are not required to keep books and do not claim input tax amounts may pay an average of 7% sales tax on their taxable transactions, with the exception of imports and intra-Community acquisitions.

Non-profit law

The modernization measures of the German Fiscal Code mainly concern non-profit law:

• The promotion of e-sports will henceforth be favored with the revision of Section 52 (2) sentence 1 no. 21 AO.
• The exemption limit for the prompt use of funds for the purpose of proving selflessness (Section 55 (1) No. 5 Sentence 4 AO) is raised from EUR 45,000 to EUR 100,000, which particularly benefits smaller organizations
• The operation of a PV system is not detrimental to non-profit status if this is not the main purpose (Section 58 No. 11 AO)
• Increase in the exemption limit for commercial business operations to EUR 50,000 per year (Section 64 (3) sentence 1 AO)
• Waiver of allocation according to the four-sphere model if the exemption limit of EUR 50,000 in annual income is not exceeded (Section 64 (3) sentence 2 AO)
• Increase in the income limit for the legal definition of the purpose of a sports club to EUR 50,000 per year (Section 67a (1) sentence 1 AO)

Tax Code

The material tax law is simplified in favor of the tax authorities:

According to Section 91 (1) sentence 1 AO, the tax office must, as a rule, send a hearing before issuing a notice or assessment if it wishes to deviate from the tax bases of the tax return filed. Deviations from this rule are only permitted in the case of compelling reasons for exclusion (Section 91 (2) and (3) AO). Otherwise, failure by the tax office to comply with the obligation to hold a hearing constitutes a violation of the right to a fair hearing that can be challenged.

From 2026, the tax authority will only be exempt from the obligation to hold a hearing if it has tax return data from third parties in accordance with § 93c AO, e.g., data from agencies subject to reporting requirements such as pension insurance or its providers (e.g., statutory health insurance). The notice or tax assessment must include a reference to the fact that the tax return data has been deviated from.